Data Analytics: Applying Data Analytics to a Continuous Controls Auditing / Monitoring Solution July...

Data Analytics:Applying Data Analytics to a Continuous Controls Auditing / Monitoring Solution

July 17, 2014

Parm Lalli, CISA, ACDA

Sunera Snapshot

Professional consultancy with core competency in:

Internal Audit − IT Audit − Regulatory Compliance − PCI

Information Security − Data Privacy − IT Strategy & Risk

Finance & Accounting − Interim CFO/Controller − Training

The only authorized reseller of ACL products in North America, solidifying our reputation as a market leader in Continuous Controls Monitoring

ACL Registered with NASBA to offer CPEs for our external Internal Audit and ACL training courses.

Offices across the United States and Canada

Certified SAP integration partner with specific expertise in SAP security, GRC, and controls

SAP

A PCI Qualified Security Assessor and Approved Scanning Vendor (QSA & ASV)

The nation’s largest independent provider of technology risk consulting

Trained and certified professionals with appropriate oversight utilizing proven, pragmatic methodologies to ensure quality results

Solution-oriented teams that tailor projects to client needs, complementing clients’ internal capabilities

Track record of projects achieving anticipated benefits, on-time, and within budget. Results driven by rigorous project management discipline and finance and IT capabilities

Delivered thousands of projects for hundreds of organizations across all major industries and sectors. Adept in servicing the Fortune 1000 but very adaptable to smaller organizations and government entities

Copyright © 2013 Sunera LLC. 3

About Your Speakers

Parm Lalli, CISA, ACDA

Parm is a Director with Sunera and leads the national data analytics practice. Parm has over 13 years of data analytics, audit, and controls experience with Sunera and other IT consulting firms. This experience includes leading multiple data analytics and CCM initiatives; installing, implementing, and configuring ACL Audit Exchange; and being involved in work on IT general controls, application controls, internal audit, IT risk assessment, process improvement advisory, operational audit, Sarbanes-Oxley Act (SOX), and National Instrument 52-109. Parm has also been involved in conducting vulnerability assessments and penetration testing for clients. Parm has a great deal of experience with CAAT’s tools, performing data analytics, and developing Continuous Controls Monitoring applications for many different business processes. He has over 13 years experience with ACL Software. Parm is a Certified Information Systems Auditor (CISA) and ACL Certified Data Analyst (ACDA).

Parm also has over 10 years experience with Arbutus Software and implementing and configuring Arbutus for clients CCM needs. Parm was involved in a major feasibility study by ISACA on the concepts of Continuous Controls Monitoring (CCM) and what organizations need to do and/or have in place to kick of such an initiative.

Prior to joining Sunera, Parm worked in Compliance Audits, IT Risk Assessments, Vulnerability and Penetration testing, Data Analytics, and IT Audits with similar firms. Parm also worked at PwC in the Advisory group performing Revenue Assurance consultancy with the Telco Industry. Prior to that, Parm worked with ACL for over 5 years where he led Data Analytics and Continuous Controls Monitoring projects. Parm is a Certified Information Systems Auditor (CISA) and ACL Certified Data Analyst (ACDA).

Analytic Definitions

•Management or Internal Audit derive insight from operational, financial, and other forms of electronic data internal or external to the organization.

•Insights can be historical, real-time, or predictive and can also be risk-focused (e.g., controls effectiveness, fraud, waste, abuse, policy/regulatory noncompliance)

Data Analytics(DA)

•Collection of audit evidence and indicators by an Internal Auditor on information technology (IT) systems, processes, transactions, and controls on a frequent repeatable, and sustainable basis.

Continuous Auditing(CA)

•Feedback mechanism used by Management to ensure that controls operate as designed and transactions are processed as prescribed. This monitoring method is the responsibility of management and can form an important element of the internal control environment.

Continuous Control Monitoring

(CCM)


Common CCM Tools

A number of tools are available. The right choice will depend on each company’s business requirements and will include how well the proposed tool will integrate with existing systems and tools.ACLSAP or Oracle GRCApprovaOversightActuate BIRTActuate e.ReportsCognos 8 BI Report StudioCrystal ReportsInformationBuilders WebFOCUSJasperServer/iReportMicrosoft SQL Server Reporting ServicesMicroStrategy Report ServicesSAS Web Report StudioGartner February 2009: Critical Capabilities for Business Intelligence Reporting


Data Analytic Opportunities

Control Based: Clearly defined objectives that are more fact-based / black & white than the fraud & error based testing.Examples: User Access, Employee Terminated in HR but Active in SAP, Authorization Limits

Predictive / Forecasting: Uses advanced algorithms to use inputs provided by the user to predict future events. Accounts for changes in weather and other special events that may have skewed comparative period results.Examples: Sales Trends

Fraud / Error Based: Use fuzzy matching and advanced logic to identify potential fraud or errors or identify potential cash recoveries. Examples: Duplicate Payments , Duplicate Expense Claims, T&E

Reports / Summaries / Process Improvement: Summarizes the data for planning, reconciliation or sample selection.Examples: Vendor Spend, Accounts Payable by Business Unit.


ISACA Study on CCM

10 Fortune 500 Organizations were involved Identify Challenges faced by Organizations Top Data Analytics tools used

– ACL– Idea– Arbutus– Tableau

Group of 10 shared knowledge and agreed upon analytics 7 Recommendations made


CCM Documents Required

CCM Project Checklist– This document is a complete Project Checklist of typical CCM project

tasks and responsibilities Data Analytic Tests

– This spreadsheet has standard analytics for many different business processes. Included are the purposes for each analytic

Requirements Document – This is a document that outlines the requirements to carry out a CCM

initiative for a specific business process. This document includes standard tests, the purpose of each test, frequency, parameters, and source data mapping.


CCM Documents Required

Application Guide– This document is a guide on how to use this CCM application. It

includes information on how to run tests manually and change parameters. It contains information about source data and how to re-run the process in case of failure.

Technical Guide– This document is the technical guide required by IT to rebuild the server.

It contains information on how to configure the server and its related components.


Types of Data Analytics

Ad Hoc Analysis– Time consuming– Data typically supplied by IT– Up to 50% more budgeted time required– Difficult to repeat tests if not documented– Exploratory type analysis

Repeatable Analysis– More skills required than Ad Hoc testing– Pre-defined scripts created to perform same tests over and over again– More consistent and can be run more frequently– Data may be supplied, but imports are automated– Good documentation for the scripts/analytics



Centralized Analysis– Development, storing, and running of repeatable analytics is centralized– A single, powerful server is set up for the repeatable analytics– Data imports are all automated– Standards in place for developing tests and scripting– Source data and results are stored on server– Better security for data files and result files– Great deal of documentation on tests, scripts, data, and sample logic

Continuous Auditing– Process of performing audit related tasks in a continuous manner– Continuous risk and control assessments types of testing– Compliance (SOX) control testing– Security even monitoring



Continuous Controls Monitoring (CCM)– Very skilled and experienced individuals are able to script and

implement– All analytics and data imports are fully automated– No interaction from end users required– Allows for notifications to be sent to Business Unit Manager about

identified exceptions– May involve a web dashboard interface, workflow, remediation tracking,

and heat maps– Better role based security for reviewing results– May provide management with areas for improvement with internal

controls– A better likelihood of identifying fraudulent activity– Acts as a very good deterrent system


Benefits of Data Analytics

Access data from many disparate sources

Independent of the systems and people being audited

100% transaction coverage with unlimited file sizes

Read-only data access to ensure the integrity of the data

Audit trails are available to identify steps taken

Scripting/batching capabilities to capture test logic (like macros)

Very fast to run and produce results Easier to comply with the provisions

of Section 404 of the Sarbanes-Oxley Act

Close control loopholes before fraud escalates

Quantifies the impact of fraud Cost-effective Acts as a deterrent Can be automated for continuous

monitoring Provides focus based on risk and

probability of fraud Direct pointers to critical evidence Support for regulatory compliance Logs for review and evidence Scalability – Build on what you

need External Audit reliance


Data Analytics Automation Benefits

Validates effectiveness of internal controls Identifies occurrences of potential fraud Identifies transactional errors Identifies segregation of duties violations Identifies process deficiencies Utilizes a technology driven process Tests 100% of transactions as opposed to sampling Accesses data across disparate systems and geographies Provides prompt notification of control breakdowns Quantifies exposure of business risk Provides an auditable history of compliance tests and follow-up activities Enables better allocation of skilled audit/technical resources within the

organization


What Are the Challenges

Implementing change Changing culture for the organization Defining what CCM can accomplish Gathering large volumes of data in multiple applications Understanding data and processes Monitoring of manual controls Relying on reporting Implementing costs Integrating with multiple compliance frameworks and into the

existing IT environments

HOW DO YOU MAXIMIZE YOUR INVESTMENT IN CCM?


Where to Apply Data Analytics

What controls are eligible for automated testing? Electronic data is available and accessible. Access to data through an automated process is possible. Rules can be documented or captured within test logic. Internal controls and Compliance controls are eligible.

What are the ideal conditions for automated testing? Large number of controls are in place. Large volumes of data are available. Multiple systems and data sources are available. Data is at multiple locations Fraudulent activities are caught prior to a transaction reaching the end of

a process.

Approach – IA Analytics

1. Internal Discussion to Identify Data Analytic Integration Pointso Review Annual Audit Plano Review Individual Audit Programso Review Sunera “Test Bank” for Standard Analytics

<Step 2-4 Determined after Step 1>

2. Identify & Obtain Data Setso Understand Data Sourceso Validate / Reconcile Obtained Data

3. Perform Exploratory Analytics (Pre-Audit)o Basic analytic steps to determine feasibility & benefit

4. Analytic Developmento Prepare value-add analytics for live audit


Data Analytics Steps for Mature Rollout

Steps for Implementing Continuous Controls Monitoring/Auditing1. Vendor selection and product evaluation

2. Assess controls

3. Scope and design system requirements

4. Data warehouse implementation

5. Data access requirements definition

6. Analytics script development

7. Results verification and review

8. Adjusting logic, parameters, and thresholds

9. Rollout

Data Analytics Implementation Approach

Data Analytics Program

Phase 1: Data Analytic Tool

Selection

Phase 2:Identify

Opportunities

Phase 3:Requirements

Planning

Phase 4:Data

ElementsPhase 5:

Implement StandardAnalytics

Phase 6:Implement

CustomAnalytics

Phase 7:Training &

Knowledge Transfer


Data Analytics Project Team

Project Team Skills– Project Manager – Managers who organize and manage all resources to

complete the implementation project within the defined scope, time, and cost

– Business – Key owners of each business process to be monitored– Audit – Process and control experts to identify areas of risk and test

design– IT – Key owners of the data and primary systems related to each of the

processes– Technical – Specialized experts to build, configure, and implement the

monitoring tools


Data Analytics — Sunera Approach

Step 1– Review existing business process risk documentation– Review existing analytics for efficiency and effectiveness– Update existing analytics for full automation

Step 2– Conduct additional reviews of business processes and identify risk

areas– Identify opportunities for improving process through Data Analytics– Identify analytics opportunities within specific business processes– Identify and verify all compensating controls



Step 3– Add risk rating for identified analytics across business units

• High, Medium, Low

– Quantify risk areas based on business units ($$)– Obtain management agreement on ratings and quantitative measures

Step 4– Create requirements documentation

• Data requirements from all available sources• Confirm test logic• Confirm required parameters• Confirm reporting fields

– Obtain agreement and sign off on requirements document



Step 5– Obtain sample data from all required sources

• Directly or data dump

– Verify data based on requirements document• All fields present• No corruption of data

– Perform data preparation Step 6

– Create scripts for tests– Create Excel result sets– Have end user and/or business unit manager verify results – Tweak any tests to remove false positives


Data Analytics—Sunera Approach

Step 7– Create scheduling for all tests

• Daily, weekly, monthly, quarterly

– Move all pieces into production environment– Verify data connections/feeds

Step 8– Create documentation for handoff– Provide training to CCM stakeholders


A Mature Data Analytics Overview

Self-contained on dedicated server Fully automated and scheduled Alerts to business unit managers or stakeholders of results Clear and concise documentation

– For all scripted analytics– For setup and configuration

Training provided to any and all individuals involved, including new hires

Ongoing review of existing analytics and possible new analytics based on new business processes

Maintain a change log for any addition or removal of scripts or changes to configuration

Manual Testing

Ad-hoc Analytics

Managed Analytics

Continuous Auditing

Continuous Monitoring

Data Analytics Lifecycle

OwnershipShift to Business

Critical Success Factors

Business Buy-in IA Executive Management Support Analytic Optimization

– Minimize False Positives for quicker buy-in – Quick wins – Low hanging Fruit

Data Identification & Access Coordination with existing analytic efforts going on in the business

– Work together and eliminate redundancy.


SOX Controls – IT GCs Leavers, Access Rights, System

Settings Segregation of Duties

Compliance (AML, HIPAA, FCPA) Policy & Procedures

Black Car Ride Example Large Fast Food Corp – T&E Audit

NEW Hot Topic Rebate Estimation Executive Dashboard Estimates Recent Algorithm Developed by Sunera

Control Based

Data Analytics Examples

Major Corporation - Waste & Abuse Adult Entertainment – MCC Analysis Double Dip – Mileage + Gas Split Requisitions to circumvent appr.

Limits Dupe Expense (Cash + Credit) Payroll to diff EE’s (same bank/ address)

Major Casino – Pit Boss Comps Credit Card Reporting Reconciliations System vs Direct Report Comparison

Global Shared Service Center – Top 10 Vendors

CRM Data Migration – Detailed Exception Reports

Fraud / Error Based Predictive / Forecasting (NEW)

Reports / Summaries



Purchasing Purchase splitting

Purchase cards Inappropriate, unauthorized purchases

Travel & Entertainment Expenses Duplicate claims, inappropriate activity Adult bars using MCC and description

Payroll Phantom employees SSN Test



Accounts Payable Questionable invoices

Invoices without a valid P.O. Sequential invoices Vendor Invoice Formats

Duplicate invoices Multiple invoices for same item description Invoices for same amount on the same date Multiple invoices for same P.O. and date

Vendors Phantom vendors

PO BOX Test Vendor/Employee collusion One time Vendors or Vendors not used in over a year


Data Analytics — Non-Industry Specific

Purchasing Questionable purchases

P.O./invoices with amount paid > amount received Purchases of consumer items

Split purchases Similar transactions for same vendor within specific timeframe

Inflated prices Compare prices to standard price lists or to historical prices


Data Analytics — Non-Industry Specific

Purchase Cards Split purchases to avoid purchasing card limits

Purchases processed as two or more separate transactions Identified by isolating purchases from specific vendors within short

periods of time Favored vendors for kickbacks

Trend analysis to compare current transaction volumes to previous time period

Suspicious purchases Transactions that occur on weekends, holidays, or vacations Travel related charges not on travel expenditure reports


Data Analytics—Non-Industry Specific

Time and Expense Duplicate claims

Submitting claims twice Tracking “no receipt” claims

Isolate expenses without receipts and identify underlying trends through profiling techniques

Threshold reviews Track personnel exceeding thresholds

Inappropriate activity Compare expenses to travel records to ensure expenses claimed for

valid trips Trends by employee compared to peers Fuel vs Mileage claims

Fuel purchase location vs Branch location


Data Analytics Sample Logic

Duplicates– Exact Duplicate – All fields identical within investigation period– Almost Duplicate Variance, Same-Different Duplicates

• Purchase Order: Same Vendor and Similar Amount• Payments: Different Vendor Same Bank Account• Payments: Same Vendor Different Invoice Number Similar Amount• Payments: Same Vendor Same Invoice, Same Amount, Different Date• Payments: Same Vendor Name, Same Amount, Same Date, Different

Vendor ID



Authorization Limits Single and multiple accumulated values exceeding limits Transaction amounts that exceed or are just below the authorization

limit Requisitions, Purchase Orders, Invoices, Payments

Accumulated transaction amounts that exceed the authorization limit Split Requisitions, Split Purchase Orders, Split Invoices, Split Payments

Aging Single Record Age

Days difference between Create Date and Approval Date Stale Requisitions, Stale Purchase Orders, Stale Invoices

Multiple Files Aging Retroactive PO vs. Invoice (Invoice Create Date prior to PO Create Date)



Data Quality– Identifying fields where critical data elements deviate from expected values

and formats• Invalid ID formats, missing key values, invalid characters, invalid values• Requisitions, Purchase Orders, Invoices, Received Goods, Payments

Segregation of Duties– SOD Security Table Level

• Comparing roles within ERP security tables to a conflict matrix

– SOD at Transaction Level• Single Record Create/Modify vs. Approve

» Requisitions, Purchase Orders, Invoices, Payments

• Multiple files» Create/Modify PO vs. Create/Modify/Approve Vendor Master Update» Create/Modify PO vs. Receiver ID for Goods Received» Create/Modify PO vs. Create/Modify Invoice



Numeric Pattern Matching Benford digital analysis: exceptions which reveal themselves as digital

anomalies. Higher than expected PO amount of $49,000, bypassing controls on amounts

over $50,000. Numeric Sequence or Gaps: exceptions which reveal themselves in a

numeric sequence or gap. Invoice Number Sequences (suspect invoices)

Transactions with even dollar amounts based on a divisor number, minimum transaction count, and threshold value. Expense Report Amounts with even dollar values



String Pattern Matching– Name Match (% word match)

• Word exclusion lists to remove common words like: The, company, and, etc.• Invoice: Employee Vendor Name Match – (Phantom Vendor)• Invoice: Prohibited Vendors

– Address Match (Numeric or Alpha Numeric match)• Match on zip/postal code plus numeric digits from address field.• Match on alpha-numeric values from the address field (no spaces or special

characters)• Invoice: Employee Vendor Address Match – (Phantom Vendor)

– Soundslike Match (phonetic match)• SOUNDEX algorithm• SOUNDSLIKE algorithm • Payroll: similar employee names• T&E: Different expense cards assigned to employees with similar names


Data Analytics Rollout Options

Insource− Internal resources plan and deploy all CCM initiatives

Outsource− Sunera resources (or other provider) perform all the activities required for

CCM rollout− Provide documentation and training to client staff for maintenance of the

program Co-source

− Sunera (or other provider) provides the knowledge and expertise and works with client staff

− Shares the work of developing and creating tests− Provides guidance− Performs reviews of client work conducted and provide feedback/insight− Conducts coaching sessions− Provides ongoing support and advice


Data Analytics Training Option

Sunera Training Offers: 2 or 3 day training classes

− Training is hands-on and classes are tailored to meets your participants’ skill levels (beginner, intermediate, advanced).

− We customize the training by integrating your company’s data into the seminar, so your employees get to work with realistic company scenarios.

− Sunera is registered with the National Association of State Boards of Accountancy (NASB) as a sponsor of continuing professional education on the National Registry of CPE sponsors and offers CPE credits to those who attend and completed the training.

− Training is provided by a Sunera Director or Principal Level Associate with multiple years and project experience using ACL.

− We are planning on offering a training course in Calgary in October pending sufficient interest.

− Training (classroom instruction) can be provided to organizations directly.


Contact Information

For additional information on Sunera’s services, visit our website at www.sunera.com or contact:

Parm LalliDirector(949) [email protected]

Data Analytics: Applying Data Analytics to a Continuous Controls Auditing / Monitoring Solution July...

Documents

Transcript of Data Analytics: Applying Data Analytics to a Continuous Controls Auditing / Monitoring Solution July...